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Will Verizon Kill Cable?

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(With apologies to Eminem.)

What if you could decouple your TV service from the cable lines? One opportunity to seize everything you ever wanted in infotainment. Would you capture it -- or just let it slip?

Is this the future?
The digital media watchers at Zatz Not Funny got a scoop at last week's CES show. Verizon (NYSE: VZ  ) executive Joe Ambeault told the site that the future for Verizon is all IP traffic, all the time. If you have a FiOS account today, your cable box will use cable-standard QAM signals for broadcast TV, but Internet Protocol data for widget and on-demand action. But Ambeault said that Verizon is "very much committed to moving everything to its new IP platform."

In layman's terms, that means making a bog-standard Web application out of Verizon's TV broadcast services. The cable box already knows how to decode and display IP-formatted data, so most of the work will be on Verizon's side of the connection and doesn't require millions of upgraded pieces of consumer equipment.

That could be a first step toward cutting the ties between the FiOS feed into your house and the TV signals it's designed to carry. Imagine firing up a TV application on your netbook or your smartphone to watch the Super Bowl while it's happening, or perhaps the latest episode of House. At first, feeds like that would invariably be allowed to cross only FiOS and then maybe Verizon Wireless data connections, but in due time, I can see the service expanding beyond Verizon's own borders.

Game-changers never have it easy
That would be a Hulu-killer, and Verizon could become a viable competitor to Comcast (Nasdaq: CMCSA  ) and Time Warner Cable (NYSE: TWC  ) in territories never touched by FiOS fiber-optics. Regulators would love it for that reason, but you'd see complaints from three other camps:

  • Comcast, et al. would hate to see new competition in territories they thought were locked up on a permanent basis.
  • DISH Network (Nasdaq: DISH  ) and DIRECTV (Nasdaq: DTV  ) would suddenly have a new rival in the coast-to-coast TV service market. Satellite dishes would no longer be the only game in town.
  • This is the big one: Cable networks would ask Verizon for astronomical fees for a service that could reach something like 70 million U.S. households at the drop of a very large hat. Verizon could pull a Netflix (Nasdaq: NFLX  ) and cough up billions of dollars for the rights to stream content online, but Hollywood could very well price Big Red right out of the market, too.

Launching a completely stand-alone TV service that would work with any high-speed Internet connection would face all these substantial hurdles and more. Starting soft and small with a completely Verizon-specific version of this vision would give the company a leg to stand on when negotiating the terms of Hollywood's surrender, and it would be smart to then grow in small steps rather than jumping head-first onto the entire broadband-connected market.

Maybe Verizon could even gain some friends in the enemy camp by partnering with, say, Comcast: Verizon TV customers using Comcast cable as the approved and enabled broadband pipe would have some of their fees sent to Comcast.

This could be the a la carte cable service we've never seen in America. Verizon and AT&T (NYSE: T  ) have long wanted to become exactly that, and I think the time is ripe.

Winners and losers
Baby steps will go a long way here, and I wouldn't be surprised to see Verizon or Ma Bell becoming major TV service players in the next five years. The losers in this game are the incumbent cable and satellite providers; Hulu is both a potential victim and an illustration of the challenges ahead; Netflix can breathe easy because it aims at a different market segment.

Any questions? Fire them off in the comments below.

Fool contributor Anders Bylund owns shares of Netflix but holds no other position in any of the companies discussed here. Netflix is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (5) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 10, 2011, at 3:37 PM, nickfinia wrote:

    No but Netflix will. It is chocking them already. Bye bye Cable!

  • Report this Comment On January 10, 2011, at 4:15 PM, jwstapler wrote:

    Good Read, just one question. If this were a viable option why wouldn't AT&T already be doing this? U-verse has always been 100% IP based. Thanks

  • Report this Comment On January 10, 2011, at 5:52 PM, MonicaPell wrote:

    Verizon or not, I cut my cable bill. Along with the $100+/month bill.

    Instead, I get TV online from a program at Have used it for a while and its reliable.

    With services like this, I can't see how anyone would willingly pay their cable co. for TV access.

  • Report this Comment On January 10, 2011, at 10:08 PM, verylargelarry wrote:

    Beware....The above post from MONICA is very likely a dangerous careful.

  • Report this Comment On January 11, 2011, at 11:10 AM, KevinniveK wrote:

    you need to do a little more homework on the content ownership side first - why are the producers of "House" going to allow FiOS to "broadcast" its show live?

    fundamental flaw in all of the cord cutting arguments out there...

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